Home First Finance Company IPO Review and Analysis in Detail
Basis Structure of Home First Finance IPO
After the blockbuster IPO season that this year has seen, Home First Finance Company is gearing up to join the list. This IPO is expected to hit the primary markets in January 2021.
The company received approval from SEBI on March 3, 2020. The Home First Finance Company IPO is sized at about Rs. 1,500 crores.
The Home First Finance Company IPO is of the book-building nature. This means the shares that are being offered are quoted with a price band. The other kind of offering is called fixed price offering, and this is characterized by a fixed price for the shares that are on offer.
The Home First Finance Company IPO will comprise of a fresh issue segment as well as an offer for sale segment.
The fresh issue segment, in this case, is sized at Rs. 400 crores. This segment contains those shares which are being newly issued by the company. The proceeds from the sale of these shares are credited directly to the company.
Home First Finance Company plans to use this amount to bolster its capital base and meet any future capital requirements which may arise.
As for the offer for sale segment, that includes those shares which are being sold by existing shareholders. These shares are not being diluted by the company. In this case, the transaction is between the existing shareholders and the new shareholders.
The offer for sale segment is estimated to be around Rs. 1,100 crores. This amount will be credited directly to the original shareholders.
The Home First Finance Company IPO's expected market capitalization will be in the region of Rs. 2800 crores.
The table below summarizes the details about the Home First Finance Finance Company IPO. Details about the Home First Finance IPO share price, Home First Finance IPO date 2020, Home First Finance IPO listing date and more have been included.
After the IPO, the Home First Finance Company shares will be listed on both NSE and BSE.
About the Company
Home First Finance Company (HFFC) was founded in 2010 by PS Jayakumar and Jaithirth Rao.
It works in the housing finance market and provides affordable housing loans to people. As of September 2019, HFCC’s network of 65 branches spanned across Tamil Nadu, Karnataka, Maharashtra and Gujarat.
The number of active loan accounts for HFFC is in the region of 37,000.
The company works primarily on a B2C business model.
Home First Finance Company’s customer base is primarily made up of salaried and self-employed individuals. In FY 2020, 72.6% of the gross loan assets came from salaried individuals while self-employed customers made up 24.6%.
The company believes in financial inclusion and expanding the scope of the banking sector in India. 35.9% of the gross loan assets in 2020 came from customers who were new to credit.
Products & Services
As the name suggests, Home First Finance Company primarily focusses on the provision of home loans. This includes both the purchase of ready-made houses and the construction of new houses.
91.5% of the gross loan assets in FY 2020 came from home loans.
Apart from that, HFFC also provides other types of loans such as loan against property (LAP), loans for purchasing commercial properties and developer finance loans. These products have a very low contribution to the loan book.
In FY 2020, 4.7% of the gross loans came from LAP, 1.1% came from commercial property loans and 2.8% came from developer finance loans.
Promoter Shareholding Pattern
Home First Finance Company is promoted by True North Ventures and Aether Limited.
The table below lists out the stake held by the different promoters and investors prior to the Home First Finance Company IPO.
Financial Overview of Home First Finance Company IPO
The table below lists out the main financial figures for the Home First Finance Company. All the figures given below are in Rs. Crores.
As we can see here, the financial figures of the company show a healthy rate of growth over the years.
The total revenue earned by the company increased at an average CAGR of 46.49%. The increase in total assets showed a CAGR of 37%. As for the net profit earned by HFFC, that showed a CAGR of 90.49%.
It is important to mention the fact that in FY 2020, HFFC’s net non-performing assets made up approximately 0.7% of the total assets under management. However, if the credit assessment quality drops for any reason, this proportion can increase very fast.
The Indian housing finance market was sized at Rs. 18.7 lakh crores in 2019. This sector has been experiencing a healthy rate of growth on account of the growing needs of the population and the increasing penetration of the credit system.
Between 2015 and 2019, this market grew at approximately 20%. According to CRISIL estimates, the outstanding home loans are expected to reach Rs. 28.4 lakh crores by 2022.
Some of the factors contributing to this growth are the increase in the demand for affordable housing, rising population and the myriad government initiatives like the Pradhan Mantri Awas Yojana (PMAY).
This puts the housing credit market in an optimal position to bloom. Here, the growth is expected to be driven by volume, particularly, the entry of first-time borrowers. According to current estimates, new entrants make up about 70% of the market volume.
The overall mortgage market in India can be broadly divided into two categories – normal mortgage loans and affordable housing loans. Home First Finance Company lies in the second category.
In the affordable housing segment, the CAGR between 2015 and 2019 was in the region of 5%. However, in this segment, the gross NPAs are higher than that in the normal housing segment.
Maharashtra and Gujarat reported the highest demand for affordable housing credit. Home First Finance Company has a strong presence in these states. According to the DRHP, the company services about 79% of the market in these areas. This puts HFFC in position to utilize the growing opportunity.
The market for affordable housing credit is growing and it is expected to grow even more in future. HFFC is placed quite well in its niche segment and has the potential to capitalize on this opportunity.
It is, however, important to note that housing finance companies are different from banks. This means it is easier to obtain licenses. This opens up the possibility of new entrants and increases in competition.
Peer Comparison of Home First Finance Company IPO
Home First Finance Company operates in the affordable housing finance segment. Notable other players in this segment are
• Gruh Finance
• Aspire Home Finance
• Aadhar Housing Finance
• Aavas Financiers
• Aptus Value Housing Finance
Based on peer comparison of the above-mentioned companies, Aspire Home Finance ranks first in terms of asset growth rate and disbursement growth rate.
Considering the profitability parameters, Aptus comes first, with the highest return on assets.
However, in terms of operational parameters, Home First leads in front of its peers. Based on the parameters of disbursement per branch and disbursement per employee, Home First was at the top of the group.
Home First also leads the lot in terms of the lowest risk exposure to potential clients. Over 70% of its clients are salaried employees, which means there is the presence of a regular source of income with which to repay the loan.
Overall, we can conclude that Aspire, Aadhar and Home First showed healthy financial parameters and asset growth over the years.
Strengths of Home First Finance Company IPO
Among strengths, Home First Finance Company has a couple of competitive edges which sets it apart from its peers. Its market share is very high in specific regions like Gujarat and Maharashtra.
Apart from that, Home First’s exposure to risk is lower than that of its peers. This is because most of its clients have stable sources of income – this reduces the possibility of loans turning into NPAs.
Weaknesses of Home First Finance Company IPO
Whenever we talk about things like housing credit, long-term exposure to risk is implied. If you top that off with the fact that Home First primarily services middle and low-income groups, the possibility of risk becomes explicit.
Loans can turn into NPAs in the blink of an eye. This puts Home First in a volatile and precarious position. The proportion of NPAs for the company has been growing. From 0.5% in 2018, it grew to 0.7% in 2019. This parameter is worrisome.
There is also the fact that the company’s business is not well spread out across the country. It is more concentrated in places like Maharashtra and Gujarat. This lack of diversification poses a risk for HFFC.
Valuation of Home First Finance Company IPO
The table below compares the main valuation parameters for Home First Finance Company with that of its listed peers.
A commonly accepted valuation measure is to compare the company’s P/E ratio with the industry average. In this case, the average P/E ratio in the industry for affordable housing finance is 19.67.
If Home First Finance Company’s P/E ratio is higher than the industry average, this is taken as an indication of the fact that the company is overvalued. If the P/E ratio is lower than the industry average, then we can assume the company will be undervalued.
However, the P/E ratio can only be calculated after the pricing band and other details have been released.
So, stay tuned!
Frequently Asked Questions
1. How to apply in Home First Finance Company IPO through Zerodha?
Simply log onto the Zerodha website or the Zerodha mobile app. Select the Home First Finance Company IPO from the IPO menu. Select the number of lots and submit your bid.
2. When Home First Finance Company IPO will open?
The subscription window for the Home First Finance Company IPO has not yet been released.
3. What is the lot size of Home First Finance Company IPO?
The Home First Finance Company shares will be available in lots of 10. This means you have to bid on a minimum of 10 shares. If you want to bid on more than 10 shares, you will have to do so in multiples of 10 – that is, 2 lots for 20 shares, 3 lots for 30 shares and so on.
4. How to apply for Home First Finance Company IPO?
There are two ways to apply for an IPO. You can apply either through UPI or through ASBA (net-banking).
In order to apply, simply log on to your brokerage house’s website, select the IPO for which you want to apply, select the number of lots that you want to bid for, and submit your bid.
5. When is Home First Finance Company IPO listing date?
The listing date for Home First Finance Company shares has not yet been released.